We’ve been enjoying a long period of steadily rising stock prices. Of course, this bull market won’t last forever. And when it does start losing steam, you, as an investor, need to be prepared.
Before we look at how you can ready yourself for a new phase in the investment environment, let’s consider some facts about the current situation:
— Length: This bull market, which began in 2009, is the second-oldest in the past 100 years, and it’s about twice as long as the average bull market.
— Strength: Since the start of this long rally, the stock market has produced an average annualized gain of 15.5 percent per year.
While these figures are impressive, they aren’t necessarily predictive, so how much longer can this bull market continue to “stampede?” No one can say for sure, but there’s no mandatory expiration date for bull markets. In fact, they don’t generally die of old age, but typically expire either because of a recession or the bursting of a bubble, such as the “dot.com” bubble of 2000 or the housing bubble of 2007. And right now, most market experts don’t see either event on the near-term horizon.
Still, this doesn’t mean you should necessarily expect an uninterrupted streak of big gains. Some signs point to greater market volatility and lower returns. To navigate this changing landscape, think about these suggestions:
— Consider rebalancing your portfolio. If appropriate, you may want to rebalance your investment mix to ensure you have a reasonable percentage of stocks, to help provide the growth you need to achieve your goals, and enough fixed-income vehicles, such as bonds, to help reduce your portfolio’s vulnerability to market volatility and potential short-term downturns.
— Look beyond U.S. borders. At any given time, U.S. stocks may be doing well, while international stocks are slumping, and vice versa. So, when volatility hits the U.S. markets — as it surely will, at some time — you can help reduce the impact on your portfolio if you also own some international equities. Keep in mind, though, that international investments bring some specific risks, such as currency fluctuations and foreign political and economic events.
— Develop a strategy. You may want to work with a financial professional to identify a strategy to cope with a more turbulent investment atmosphere. Such a strategy can keep you from overreacting to market downturns and possibly even help you capitalize on short-term pullbacks. You could invest systematically by putting the same amount of money in the same investments each month. When prices go up, your investment dollars will buy fewer shares, and when prices drop, you’ll buy more shares. And the more shares you own, the greater your potential for accumulation. However, this strategy, sometimes known as dollar cost averaging, won’t guarantee a profit or protect against all losses, and you need to be willing to keep investing when share prices are declining.
During a raging bull market, it’s not all that hard for anyone to invest successfully. But it becomes more challenging when the inevitable volatility and market downturns appear. Making the moves described above can help you keep moving toward your goals even when the “bull” has taken a breather.
Reed Wilcox is a financial advisor in the Rutland office of Edward Jones. Reach him at 773-9607.